SMM Aluminum Price Forecast (Aug. 15-19)

Last week, SHFE aluminum prices fell initially, but rebounded later in the week. SHFE 1110 aluminum contract prices fell continuously early in the week to RMB 16,425/mt given bearish market sentiment, but later rallied to the 60-day moving average, supported by low spot aluminum inventories and long buying at lower prices, with prices closing around RMB 17,600/mt. Although China’s National Bureau of Statistics released on Tuesday that China’s CPI rose by 6.5% during July, significant declines in commodity prices ahead of China’s CPI data allowed China to delay the introduction of fresh credit tightening policies, and investor confidence improved as a result. Aluminum ingot is widely used in infrastructure construction and is very popular with investors, so SHFE aluminum prices rebounded strongly after significant declines, with aluminum becoming the first metal to stand above the 5-day moving average.

SMM spot aluminum prices resisted declines and even rebounded rapidly, supported by the unwillingness of cargo-holders to sell goods at lower prices, reflecting confidence in the RMB 18,000/mt price point. Spot aluminum inventories in east China have fallen continuously since late July to below 300 kt, so the unwillingness of cargo-holders to sell helped spot premiums soar to between positive RMB 200-300/mt over SHFE current-month aluminum contract prices early last week when SHFE aluminum prices plummeted, with spot premiums remaining unchanged as the delivery date nears. Wide fluctuations in aluminum prices caused downstream buyers and middlemen to assume cautious positions, purchasing only on an as-needed basis. In addition, high premiums ahead of the delivery date also depressed buying interest, leaving some buyers preferring to enter the SHFE aluminum market to purchase SHFE current-month aluminum contracts for delivery rather than buying in spot markets. As a result, overall spot transactions were extremely limited.